Podcast #40 Show Notes: Physician on Fire Update
Physician on Fire is back on the podcast to give us an update on his blog and all the benefits of going to part time work. Many of you sent in questions to answer in this episode and we tried to get to as many as we could. Listen to the podcast here or it is still available via the traditional podcast outlets, ITunes, Overcast, Acast, Stitcher, Google Play. Enjoy!
Podcast # 40 Sponsor
[00:00:20] This episode is sponsored by Adam Grossman of Mayport Wealth Management. Adam is a Boston-based advisor and works with physicians across the country. Unlike most other advisors, Adam offers straightforward flat fees for both standalone financial planning and investment management. Whatever stage you’re at in your career, Adam can help you get organized with a personalized financial plan and can help you implement it with a low-cost index fund portfolio. Adam is a Chartered Financial Analyst and received his MBA from MIT, but more importantly, you’ll benefit from Adam’s own personal experience with many of the same financial obstacles and opportunities that face physicians. To learn more, visit Adam’s website to download a free e-book especially for physicians.
Quote of the Day
[00:01:07] “Benign neglect is, for most investors, the secret of long-term success….The hardest work in investing is not intellectual; it’s emotional.”
[00:01:19] Physician on Fire gives us an update on his blog this last year and what we can expect from PoF in 2018.
[00:04:28] PoF has now gone part time at work. He shares how that discussion went with his partners and about his new schedule. He is off work until March!
[00:12:49] Ever heard of slow travel? This is how PoF is seeing the world with his family now that he has several weeks off in a row.
[00:17:03] We talk about safe withdrawal rates for early retirees, now that PoF is well on his way to being one.
[00:23:33] We talk a bit about being debt free.
Q&A from Readers and Listeners
- [00:27:05] “Should Roth IRA be considered for intermediate term savings goal i.e. saving for a house in seven years instead of using a high yield savings account?”
- [00:30:40] “I’m wondering if I need to re-evaluate my office retirement plan, 10 employee dental office with a 401k, since the tax law changes?”
- [00:34:21] “Can you discuss the pros and cons of holding cash in a money market in one’s portfolio especially considering the one point four percent return on Vanguard money market versus a 3 percent U.S. inflation rate? I’ve seen example portfolios with as low as 0 percent to 2 percent even around 10 percent with the Schwab Robo advisor.”
- [00:39:49] “For those who will die with money leftover, what do you guys think of intentionally overfunding your kids 529 from the get go with the thought the money will eventually be used for grandchildren or even great grandchildren?”
- [00:42:50] “What’s your plan for healthcare coverage going forward as an early retiree?”
- [00:46:33] “I’d love to hear how your visions of practicing medicine later in your careers have evolved and changed over time given what seems like earlier financial independence than anticipated for both of you.”
- [00:51:51] “What non-financial non-professional learning do you now find most fulfilling? What work do you now find most meaningful? What do you find most surprising about FIRE?”
Introduction: [00:00:00] This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We’ve been helping doctors and other high income professionals stop doing dumb things with their money since 2011. Here’s your host Dr. Jim Dahle.
WCI: [00:00:20] Welcome to podcast number 40 an interview with Physician on Fire. This episode is sponsored by Adam Grossman of Mayport Wealth Management. Adam is a Boston based adviser who works with physicians across the country. Unlike most other advisers Adam offers straightforward flat fees for both standalone financial planning and investment management. Whatever stage you’re at in your career Adam can help you get organized with a personalized financial plan and can help you implement it with a low cost index fund portfolio. Adam is a Chartered Financial Analyst and received his MBA from MIT. But more importantly you’ll benefit from Adam’s own personal experience with many of the same financial obstacles and opportunities that face physicians. To learn more visit Adam’s website Mayport dot com slash white coat to download a free eBook especially for physicians.
WCI: [00:01:07] Our quote of the day today is benign neglect is for most investors the secret of long term success. The hardest work in investing is not intellectual, it’s emotional.
WCI: [00:01:19] We have a special guest back with us today the physician on fire who needs no introduction to most of you. He runs an extremely successful blog at physician on fire dot com that if you haven’t checked out yet you should and we’ve had him on here before a few months ago. Physician on fire Welcome to the show.
PoF: [00:01:42] Thank you very much Jim. I’m excited to be back on. It’s been a while.
WCI: [00:01:46] It’s good to have you here. So give us an update. How is your blog been doing. How did it do in 2017?
PoF: [00:01:53] It did surprisingly well. You know I’m humbled that you call it extremely successful because I’m not sure what that makes your site which is is about five six times bigger than mine. But we partnered up early last year March 4th. We announced our partnership and that certainly helped bring some new readers to me and in 2016 I had about 400000 page views that’s kind of the currency or the scorecard we we tend to use as far as the traffic on the site. And last year had about one point five million page views so almost quadrupled my traffic from the first year to the second. So it was pretty cool.
WCI: [00:02:34] That sounds fantastic. And what can podcast listeners expect to see from you in 2018?
PoF: [00:02:42] In 2018, Well we’re there already in some ways more of the same. I’ve got a schedule where I put out a new post of my own every Tuesday. I have a guest post or an interview type post every Thursday within the white coat Investor Network which includes you, me and passive income M.D. We have a Saturday selection that is a classic post and then on Sunday that tends to be my most popular post and that’s a roundup article, not article, but a list of articles that I’ve found throughout the week that I think my audience would enjoy and I usually include a little tidbit of something personal in those posts as well. So that’s the blog post schedule. I’m also doing some personal appearances which I haven’t done a whole lot of beforehand but I’ll be speaking at your white coat investor Financial literacy and physician Wellness Conference here in March.
PoF: [00:03:38] So I’m definitely looking forward to that. Coming up very soon at the end of January which I imagine will have happened by the time this is out there but I’m going to be on stage at the New York Stock Exchange when we ring the closing bell. I had an invitation from Inspire investing to be up there clapping, smiling, and showing my face to the world. So that’s that’s very exciting too.
PoF: [00:04:04] I’m also going to be at what is called Camp Phi Kappa phi Midwest in August and I know another physician already signed up after hearing that I would be there. So that’s going to be a lot of fun. That’s kind of a weekend retreat for a few dozen people. And then we’ll see. We’ll see what happens from there. Now new opportunities continue to present themselves.
WCI: [00:04:28] That sounds great. Now for those who don’t know Physician on Fire is an anesthesiologist about my age early 40s who has really taken an interest in financial independence and retiring early and actually cut back to part time work just a few months ago I think. You went to Point six full time equivalents. Tell us about that, how is part time work treating you?
PoF: [00:04:53] It’s been great so far better than I had hoped. You know in hindsight I’m surprised I didn’t make this change sooner but I didn’t know that it would really work in my practice but my partners have been gracious and have picked up the slack from shift that I don’t work. So I started in October and I was able to arrange a schedule in which a basically a full work at our surgery center and that’s four ten hour days roughly on average. And then a 72 hour weekend of hospital work part of which is home call.
PoF: [00:05:26] So I squeeze that into seven or eight really busy days but then I have the next three sometimes four weeks off. I just actually finished shift this morning so I was on duty the last 7-8 days and now I’m not working until March. So we’re taking advantage of this time. My family and I. I’ve got two boys that are aged 7 and 9. So the four of us are taking some extended trips. We spent most of November in Guanajuato Mexico and we attended a Spanish immersion language school and just kind of took it easy in the central highlands of Mexico which is a beautiful place to be in a lot of friendly people and it was awesome. Well coming up here in it go ahead.
WCI: [00:06:12] This is incredibly remarkable. I mean we’re recording this on what January 20 third I think. And you’re telling me you’re off till March I know you’re at the conference here until March 3rd and so that’s got to be six weeks before you work another shift again. Well working point six full time equivalents.
PoF: [00:06:31] That’s correct. I’m doing double duty and pulling double duty in March so after the conference I’ll do I guess a one point two FTE for March. OK but I’m off for six weeks and we’re going to spend most of February in Hawaii.
WCI: [00:06:45] I’m sure there’s a lot of podcast listeners for whom that sounds like a dream, they probably haven’t had that much time off since the summer between first and second year of medical school.
PoF: [00:06:55] Right and I think it might have been before medical school for me. I don’t even know if I have that much time if I did I was probably studying half of it. So it really is you know after about 20 years it is Nice to relax and take a real break because a week or even two it’s hardly enough time to feel like you’ve really unplugged and when you come back from a short vacation you almost feel like you need a vacation from the vacation.
WCI: [00:07:19] Unplug right. Six weeks. Wow.
PoF: [00:07:26] But I am always plugged into the website somewhere.
WCI: [00:07:26] Sure yeah. It’s interesting isn’t it. You know you think you going into this lifestyle specialty and it turns out that it’s you know and then you take on this second job that eats up all your free time it’s not quite exactly what I think a lot of people think working from home is the problem with being able to do your work at any time anywhere is that all of a sudden you start doing the work all the time everywhere.
PoF: [00:07:50] There is always work to be done. Try to find better balance. That’s another goal in 2018. And I kind of fell off the workout wagon and wasn’t really doing much and I just decided I need to prioritize and there will always be more blogging stuff to do so that doesn’t mean I have to do it, make sure I enjoy time with my family and take time to work on myself.
WCI: [00:08:12] So yeah well I think part time work is one of those things that can really impressively reduce burnout among physicians. I think there’s a lot of docs that think they just want out of medicine. That would be very happy with it if they could cut back to three quarter time or half time. Tell us about how that conversation went with your partners. Because in your relatively small town it’s a little bit harder to cut back because someone else has to pick up the work. How did that go and what do you think was the secret to getting what you wanted out of that conversation?
PoF: [00:08:45] You know that’s a great point. And you know there are only five anesthesiologists in town here. And you know the conversation started and I think I tried to kind of build up to it a little bit. I was hinting at maybe wanting to slow down and I thought it would happen when one of my partners was ready to slow down at the same time and we could just hire another doc and each work half an FTE which is what the happy philosopher is doing right now. But with just the five of us I happen to have one of my anesthesia colleagues who is on a curling team with me and it was our turn to do concessions and so we were just kind of chatting and I said Yeah you know I’m hoping you know one of our other colleagues will maybe think about slowing down sooner than later and he said Well you know I think we could make it work for you anytime you want. I said Really?
PoF: [00:09:36] He said Yeah you know that the there were a couple of the guys that were doing locums elsewhere and our hospital decided that they didn’t want our docs working locums elsewhere. So they basically put out new guidelines saying you can’t do that. And so they thought well they would be willing to work 10 percent 20 percent more internal locums essentially. And once they talked with the other partners they all agreed to work 10 percent more which allowed me to work 40 percent less.
PoF: [00:10:07] So it was pretty easy to convince administration that it would be a cost neutral change to them, it would benefit the partners of mine who now could no longer do locums elsewhere. And as far as I’m concerned it’s working out really well and I think my partners are pretty happy with the arrangement to at least so far. It’s not a long long term solution. We have actually hired someone that’s going to come in about a year and a half from now and at that point if our volumes are roughly the same as they are now I probably won’t have a job here.
WCI: [00:10:43] So you think you think that’s a risk you think they’ll just force you out? Is it the partners or the hospital that would be forcing you out?
PoF: [00:10:51] Well I wouldn’t say force out is the right term. I might be ready to go.
WCI: [00:10:56] Yeah yeah that’s what I was going to say I was like that’s that’s kind of fortuitive for you to just.
PoF: [00:11:00] But if not you know I mentioned locums that would be a great way to continue my career if I wanted to still work part time and then I could just say work maybe one month every three or four months and take even longer breaks and just you know I would have to do enough to feel comfortable with the type of cases that I’m doing and keep some skills. But you know I gave up you know taking call entirely. That would not be such a bad thing. Like I said I just got off a weekend and I was working past midnight. Two out of three nights of course. Up first thing next morning each day to to do cases so I wouldn’t mind so much if I ended up finding a different position where I didn’t take call at all. But for right now I actually love this setup.
WCI: [00:11:44] Now I’m curious. Personally I thought maybe after you cut back to full time to part time rather than you might think well maybe I don’t want to retire completely maybe early retirement isn’t all that I’m really enjoying part time work. Do you think your attitude toward early retirement has changed since you cut back to part time?
PoF: [00:12:06] I think that’s a distinct possibility. And I guess I’m looking at these three to six week breaks as you know a chance to kind of mentally come to terms with the idea of not working. And so far I can’t say that I’ve missed work when I’ve been away. So to do that for a year and a half that will probably give me a pretty good insight and I’m only four months into it now. So time will tell. I would like to do a little bit of mission work. I’m looking at lining something up for later in the year. And you know maybe that’ll give me some some purpose to continue to work enough to keep my skills so that I can maybe use that to go help some people that would otherwise not find the help they need.
WCI: [00:12:49] Very cool. Now you’ve mentioned briefly earlier this concept of these long trips you’re taking, this slow travel concept. Tell us more about slow travel and what you’ve done and what you have planned and why you think it’s so great.
PoF: [00:13:02] You know slow travel is a lot different than a vacation. You know we’ve gone on vacation where everyday we have two or three you know tourist sites we want hit up because hey we may never be back here again. And you go from morning till night and you know that other people have you know vacations and that’s not my idea of vacation. We’re going to sit on the beach for a week and and do very little and then go back to normal life.
PoF: [00:13:28] But slow travel is really more like living somewhat in a way similar to how you would live at home you’re just doing it somewhere else. So your trip to Mexico every morning we help educate our kids.
PoF: [00:13:44] Now normally they’re in school but we did their schoolwork in our apartment that we had for three weeks and we saw some tourist sites but maybe just a couple times a week. We went out and did something like that we went back I said to that language school every day Monday through Friday. And slow travel is really just you’re living somewhere else, you living somewhere else and you can do it a lot more affordably then you can vacation. You know Air B and b and vrbo rentals have weekly and monthly rates that tend to be quite a bit lower than the daily rate of a hotel.
PoF: [00:14:18] You know you can find yourself a place with a kitchen and laundry and it’s just a great way to kind of do less vacation and more of just exploring the world on a on a budget that’s a little bit different.
PoF: [00:14:36] As far as what we’ve got lined up I mentioned we’re doing three weeks in Hawaii. Now it won’t be that slow because we’re doing three different islands and we’ll be bouncing around quite a bit. We’re thinking about going to Ecuador and Peru this spring.
PoF: [00:14:53] Our kids have seen shows on Machu Picchu and our parents just went there and brought back a T-shirt literally. They say Machu Picchu so they’re pretty excited about that. And after that you know I can see southeast Asia Australia and New Zealand. There are a lot of places we could explore.
WCI: [00:15:11] Yeah it’s pretty amazing what possibilities open up when you have these three to six week blocks of time off from work. And it’s really quite an opportunity. And I think of a lot of places like to go but it just doesn’t make sense to go there for less than two weeks. And it’s tough to break out of two weeks even with my schedule it’s tough to get two weeks to go there.
PoF: [00:15:32] It is and it’s tougher for kids especially when your youngest is 2 years old. That does change the dynamic. And we are 7 and 9 years old. And so they travel pretty well and they don’t need naps and they don’t wear diapers and they can they can keep up with us as far as you know hiking and exercise and just having energy. I mean they have more than we do now.
WCI: [00:15:54] You know that helps quite a bit. I mean I have one of the most lifestyle focused partnerships I know of. And you know we’ve got a rule that you can’t take more than two weeks off without getting approval from the other partners. And so even even just a two week is a fairly difficult thing to do. Easy to take a week but two weeks is much more difficult and three weeks is almost impossible in our partnership. And so even even working part time.
PoF: [00:16:21] Yeah because I think you’ve announced now that you will be working half time this summer correct.
WCI: [00:16:25] Yeah I’ll be I’ll be half time by August it sounds like it’s going to be a gradual change. One of my partners wanted a few more shifts and so it won’t be an abrupt going from three quarter to half time right now I guess it’ll gradually trend down from April through August but by the end of the summer I’ll be down to half time which I’m excited about. But the truth of the matter is what I’m trying to do is cut back to full time because I’ve got this other thing going that’s that’s honestly I’m spending more time on than I am I practice already.
WCI: [00:16:52] And so what I really got right now is a full time job and a three quarter time job. So I’m trying to cut down to just one full time job for now.
PoF: [00:17:01] Good luck with that.
WCI: [00:17:03] All right let’s let’s turn the page a little bit let’s talk about safe withdrawal rates for early retirees. You know this is something people love to talk about for hours on end on the Internet. But I want to hear your thoughts on what safe withdrawal rates ought to be for early retirees. How that changes when you’re retiring in your 40s and 50s versus 60s or 70s. And what advice you have for listeners on safe withdrawal rates.
PoF: [00:17:31] Sure this is something that I’ve certainly read a lot on and you know I owe my knowledge and opinions to you know William Bangan who had the first study out there on the Trinity study out of Trinity College and more recently Michael Cujus Wade Fao and there’s a really great series from early retirement now dot come that he’s got I think 23 post in a safe withdrawal series now and he’s done about 10 case studies looking at this from a Ph.D. economists point of view.
PoF: [00:18:06] And so you know that the standard and you often quote this one on your side is the the 4 percent rule which says you can save up 25 times your anticipated annual expenses and you’re in really good shape to have your money last 30 years or more. Now with an early retiree let’s say I retire in my 40 years I might live 50 years or more. Now the good news is under most scenarios if you look at past results and of course you have to have some assumption that the future will look something like the past even if it’s the worst case scenario in the past because when they say that 4 percent is good enough that really means that in almost every scenario in the past. And I think the 4 percent role works 97 98 percent of the time. And even in the worst time to retire you would still see your money last at least 30 years before the balance goes down to zero. If you’re withdrawing 4 percent that first year and then increasing that withdrawal with inflation if you want to last longer you might want to consider withdrawing less. Now most likely you’ll be fine with the 4 percent rule and you might even be good with a five or six percent withdrawal. If the sequence of returns i.e. the returns right to the end of your career and early in retirement are at least average or not significantly below average.
PoF: [00:19:42] Personally I’m planning on a three to three point three percent withdrawal rate. Part of that is because the markets have kind of been on a tear lately and my potential retirement date is it’s more based on a time frame now than it is on a dollar amount. I’ve surpassed the amount that we would need to maintain a lifestyle we have at a 4 percent withdrawal rate and I think we’re actually maybe now at or below 3 percent. I would not be surprised to see a bear market come soon and that might change things for us. Yeah I think I’ve done it quite a bit about that. But there are certainly other things you can do if you don’t feel comfortable strictly having investments and counting on the market to give you returns.
PoF: [00:20:33] There are other classes. Real estate ways of earning passive and semi passive income. As a retiree, passive income M.D certainly has some ideas on that.
WCI: [00:20:45] And now I I’ve always been of the school of thought that this is something people spend way too much time and math doing. I’m kind of a fan of the Taylor Larimore school of thought where you kind of keep an eye on your balance and you just as you go. I mean all through our lives we adjust our spending according to what we have and what we make. And I don’t see why that would be any different in retirement. You know if you’re retiring with just barely enough you just get over your number and you’re just barely going to make it that I can see why. You know if you have no ability whatsoever to cut back on your spending in your retirement why these studies would be so important. But I think for most of our listeners here that’s not so much the case they’re going to be in. The differences, You know if you need to cut back a little bit maybe you take three vacations instead of four. You know and there’s a lot of places that a typical physician retiree at least one has been paying attention to her finances for the last 20 years should be able to cut back on. And so I’m a big fan of adjusting as you go. I have a blog post coming up now where I argue that of these three factors your ability to cut back your asset allocation and your initial withdrawal rate, that the most important of your flexibility. Much more important in that scenario.
WCI: [00:22:05] And so I think we spend way too much time talking about the asset allocation and more particularly the withdrawal rate when in reality you know we’re not locked into some certain level of spending. We can change that as we go along. And if things are going great and bad returns don’t show up early in retirement we can spend a little more if all those bad return years show up early in retirement well, you’re going to tighten your belt and spend a little bit less. But I guess I don’t see that as the end of the world that a lot of these studies seem to suppose it is.
PoF: [00:22:37] Right. And a requirement to be rigid. You know like you say if you are retiring with what might be called a lean fire in the Reddit terminology which is having you know just enough to have you 25 times somewhat bare bones expenses then you have not a whole lot of flexibility. But if you’re more like you or me and looking at a quote unquote fat fire scenario the opposite of the lean fire then yeah certainly if you have a 80000 or 100000 or 120000 dollar budget you know then there’s room to cut back. It does help if you aren’t already used to all of the finer things. You know there is of course the hedonic treadmill that’s a whole another conversation. But being comfortable with cutting back is also important for sure.
WCI: [00:23:33] All right let’s change subjects here. Let’s talk a little bit about being debt free. Now you’ve been debt free for quite a while, I became debt free last spring when we paid off our mortgage. It comes with both upsides and downsides. What’s your take on being debt free now that you’ve been debt free for a few years. Tell us about what you’re glad about what you regret etc. As far as being debt free.
PoF: [00:23:55] I have no regrets that I paid off my mortgage and bought our most recent home with cash and I paid off my student loans too. Now in hindsight I can see what the S&P 500 has done in the interim and I actually did that just the other night when we bought our house. It was a little over four years ago and the market based on S P 500 is up 65 percent or so in the interim. So you know if I had taken on a mortgage even after paying the fees and some interest I’d be well ahead of where I am because I guarantee you my house is not worth sixty five percent more than it was four years ago maybe 10 15 percent. But again that’s in hindsight and we didn’t know what was going to happen in and also there is the wonderful feeling of not owing any money to anyone and not seeing a couple of thousand dollars few thousand dollars leave our checking account each month just to pay a mortgage. Student loans, Same deal I think I was at or under 2 percent. I paid them off at least five years ago. And of course I would have done better in the market. But I feel very at ease knowing that I don’t have any more debts to pay.
WCI: [00:25:11] Well if only you had that almanac that Biff had in Back to the Future. You know then you could go back instead of you know instead of buying stocks and keeping the mortgage you could about bitcoin and kept the mortgage. Then you would really kill it. So yeah it’s true you can’t make these decisions in retrospect and there are no risks either way. There is the risk that the market will go on a tear and you just basically locked in you know a 2 or 3 percent return. Paying off these low interest rate student loans and low interest rate mortgages. But at the end of the day it really is nice to have that improved cash flow. And it’s interesting because most of the people I meet that advocate this carrying debt scenario and investing it on the side are not particularly wealthy. And I think when you’re not particularly wealthy I think you can make a better case for that. I think you have more of a need to take risk whereas you kind of know what you want to spend in your life. You’ve already got enough to do that you don’t really have a need to take leverage risk. And so you know the old scenario of when you won the game stopped playing.
PoF: [00:26:15] Yeah. And I think the fact that you know we live in a low cost of living area and our our home is probably not even 10 percent of our net worth. So the sting of a missing out on Better returns elsewhere isn’t really much of a sting because we still have 90 plus percent of our net worth invested elsewhere.
WCI: [00:26:37] Exactly. All right well we asked for questions on both Twitter and Facebook from readers and we’re going to get to as many of those as we can today. We don’t want to make this podcast too long and so I’m going to save some of these questions because we were just overwhelmed with them we’ve got several dozen questions here. I’m going to save some of those for future podcasts. But let’s get to as many as we can and we’ll just go through these and try to answer them and go from there.
WCI: [00:27:05] All right. So this first one comes from Twitter from Terrence Yu who asks Should Roth IRA be considered for intermediate term savings goal i.e. saving for a house in seven years instead of using a high yield savings account. You want to take a shot at that one.
PoF: [00:27:19] Sure. I guess my first question would be why you’re saving for seven years for a home. Maybe you’re like us and want to buy a home with cash or not have a mortgage. But if you’re saving for a down payment and hopefully you could do that in maybe seven months. But as far as you know investing in Roth and accessing for a home or a big purchase I recommend against it. I think if you can get money into a Roth that you want to leave that there as long as you can and and that’s not where you want to go looking for money for a down payment on a home. So yeah my advice would be would be no.
WCI: [00:27:58] Yeah. Now a Roth IRA and an IRA for that manner. You can take out up to ten thousand dollars penalty free if you’re using it for a first home purchase which is not necessarily just your first home it’s just you haven’t bought one in a while. And so that’s a nice feature of a Roth IRA. But I agree with you, my Roth IRA money is so valuable. I mean this is money that’s going to compound tax free for decades during my life and if I leave it to heirs for maybe six or eight more decades after my death I hate to raid that for something as silly as a house down payment that I could save up otherwise.
PoF: [00:28:37] And I would much rather you know take out a physician loan and at a low down payment to to buy a home rather than a raid Roth account.
WCI: [00:28:48] It’s just so beneficial. And you know in addition to the tax benefits it makes your estate planning easier, it gives you additional asset protection in almost every state. And you know I think it’s probably something that you know is designed for retirement and you really ought to use it for retirement. If you can help it.
PoF: [00:29:08] And it’s probably the last that you should access in retirement. Now some people use Roth conversion ladder because you can get at those conversions after five years and you can withdraw your contributions to Roth at any time. But again why would you like you said that can grow tax free for ever. Basically. So I would let it do that.
WCI: [00:29:29] It’s very it’s very impressive to me now to look at the money that Katie and I put in a Roth IRA during residency and what it’s grown to and knowing that we’re still two decades away from a typical retirement age. I mean that is going to be a lot of money those you know those big sacrifice to save three or five thousand dollars during residency and put it into a Roth IRA. But at that time we thought we were done with Roth IRAs as soon as we got out of residency because you know there was no backdoor Roth IRA back then. And so we were really hesitant to do anything but Max those out. In fact I think my third year residency actually took out a zero percent credit card loan to max out my Roth IRA knowing I could pay it off in a few months as soon as my first paycheck hit. Very nice but it was just you know I looked at it as that valuable that I was willing to borrow money on a credit card to make sure I could max it out. And so then to turn around and rate it for something like a house down payment just seems to seems wrong.
PoF: [00:30:25] I started one for my fiance when I was still a resident. And and so we’ve we’ve had that money for since 2006 so 12 years. I’m sure it’s probably darn near triple.
WCI: [00:30:40] All right our next question also on Twitter. This one comes from three wood. I’m wondering if I need to re-evaluate my office retirement plan. 10 employee dental office with a 401k. A wife is full time so we can max for both of us. And based on the census it is too costly to add profit sharing before the tax law changes.
WCI: [00:31:00] Now these ones are always interesting. Your retirement accounts are really simple. If it’s just you or just you and your spouse in the business you know you just go get an individual or a Solo 401k. And that’s literally all you have to know about it as soon as you start adding employees. It gets complicated and in fact I think once you have employees it’s no longer a do it yourself project. I think it’s time to hire a pro to do a study and sometimes you’re going to find at the end of that study that the answer is sometimes a 401k. Sometimes it’s a SEP Ira sometimes it’s a simple IRA. There are several different ways to do the 401k but the bottom line is you may end up spending more than your benefit from having their retirement plan because you got to you know you can’t discriminate against the employees. You’ve got to provide them a match and you’re you know you can’t be getting this sweetheart deal while they get shafted. And so you have to look at all the laws on that and you have to do these studies with actuaries and looking at the ages of your employees your age. And it really gets pretty complicated.
WCI: [00:32:07] And so it sounds like three wood here decided to did this study a while back and was really wondering now with the new tax law whether anything has really changed. And the truth is I don’t think I know whether anything’s changed enough to make it more beneficial. I would suspect given the drop in tax rates that is probably less beneficial now than it would have been before. So if this study was done before and it didn’t make sense for him or her to have a 401k that it probably doesn’t make sense now. But it never hurts to get it studied again and to hire somebody to come out and take a look at all the employees and how much people are likely to contribute and do that actuarial study to decide whether it’s worth putting your retirement plan into place. It doesn’t hurt to do it again every few years because situations do change.
PoF: [00:32:56] I’m glad you took that one Jim because I did not have a good answer. I’ve been I’m an employee, I’ve been an independent contractor and like you said all I had to decide was how much to put into my solo 401k or back in the day had a SEP IRA. And now I have a employers 401k. But I do have a question for you Jim how does someone go about finding the person to do that study or that census that would tell you you know what might make the most sense.
WCI: [00:33:22] Well it’s actually there aren’t a lot of people who do this. There’s a few firms and you’ll find them both on dental town as well as on our recommended list at the White Coat investor under the recommendations tab of people who specialize in this. For example when I was away one of my advertisers Konstantine Litovsky basically specializes in this and this is what he does. He goes out and he does these studies on your practice. You know you’ve got four employees and you got two dentists and he does a study on it and says you know what would work best for you, Given how much you want to contribute and how much you want to save and how old your employees are is a simple IRA or it’s a 401k with you know a safe harbor you know and there’s all these different ways to do it. But the honestly I’ve looked at this enough that it just isn’t a do it yourself project. You need a pro involved if you’ve got employees in your practice.
PoF: [00:34:16] And I like Kon. He’s on the white coat forum quite a bit. So he does give us some good answers there.
WCI: [00:34:21] OK let’s take one from Facebook. This one’s from Austin Wynn who asks Can you discuss the pros and cons of holding cash in a money market in one’s portfolio especially considering the one point four percent return on Vanguard money market versus a 3 percent U.S. inflation rate. I’ve seen example portfolios which as low as 0 percent to 2 percent even around 10 percent with the Schwab Robo advisor. Also says I really appreciate all the WCI network. Thank you. Take this one. What do you think. Cash in a portfolio how much should be in there what’s reasonable what isn’t?
PoF: [00:34:56] Well there are really I would say two main benefits of having cash One is if you’re a retiree and you want to ride out a bear market and have money to fund your expenses without selling any investments cash can help you sleep at night during those times. Now I have read really pretty thorough study from early retirement now in which he said that cash cushion it will benefit you during that bear market but probably cost you more in the more likely bull market. So in the end you really do come up behind by doing that.
PoF: [00:35:34] The other big advantage of having that cash is quote unquote dry powder. So if a great investment opportunity comes along, it might be an alternative investment might be an angel investing situation or a microbrewery like I invested in. Then you have the cash at the ready to go ahead and invest. But again there are other ways of having quote unquote dry powder. I mean for me it’s my taxable investing account. I can sell those index funds as mutual funds at any time I could have plenty of cash ready to go in 48 hours to make that investment or even cover that expense. You know we could even kind of roll emergency fund talk into this a little bit. But you know like you say your cash is probably not going to keep up with inflation. That that’s kind of how it works. You know median inflation is about 2.5 percent mean is about 3 percent in the U.S. and are currently our savings accounts are paying you know one to one and a half percent for the most part.
PoF: [00:36:36] So I’m not a big fan of holding cash. For those reasons and I’d like to hear your opinion.
WCI: [00:36:44] Well I think if you’re a retiree you can make a little bit more of a case for it. For example my parent’s portfolio has a little bit in cash. I think it’s 5 percent. And I think at one point it might have been 10 percent. And our theory there was well we got to two and a half years of withdrawals that you can take no matter what’s happened in the stock and bond market you know the money’s there and that gives you two and a half years to wait for the market to come back if there’s some terrible event and that was our reasoning behind it. But in the accumulation phase it’s hard for me to justify any at all. I don’t actually have any cash at all in my retirement portfolio. But I’ve got a couple of cash like things going on that probably make that not necessarily 100 percent true.
WCI: [00:37:36] The first is my nominal bond fund allocation is in the government Thrift Savings Plan G Fund and this is basically something that pays bond yields 10 year Treasury bond yields with money market risk. And so right now I think it’s paying two point three five percent. So I mean it’s one percent better than most of the savings accounts you’re seeing out there right now. So that’s a little bit better but it really does you know act like cash as far as risk goes so I can’t say I’m not in any cash at all because I’ve got this cash on steroids kind of account.
WCI: [00:38:09] The other thing is I’ve got so much cash sitting around to pay taxes and things like that you know other commitments I have going forward. I mean sometimes well into the six figure amount I have cash just sitting around because you know my taxes aren’t due for a couple more months but especially in your portfolio. Yeah it’s not part of my portfolio. But you know if you look at everything I’ve got some cash drag from that but I’m just not comfortable taking taxes that are due in two or three months and putting them in an index fund I’m just not comfortable with it. And so I keep them in cash and it earns you know one percent one point three percent or whatever you can get on cash these days. So I don’t know that I can criticize somebody with a small amount. Now you got 25 30 40 percent of your portfolio in cash. I think you’re making a mistake. You’re either trying to market time or you are just not taking enough risk. I mean a lot of people don’t realize how much risk they need to take in order to meet their retirement goals. I mean when you are not investing aggressively you might need a 50 percent savings rate just to be able to retire at the end of a normal length career and forget early retirement. So it’s important to be appropriately aggressive with your investments.
PoF: [00:39:20] I’m always surprised that the articles I read maybe in USA Today or something where they interview very wealthy individuals and how much cash they’re holding. It’s surprisingly high. 20 30 percent. But I think these are entrepreneurs that might be looking for the next big thing in a business to buy. But for investors like you and me who aren’t dealing in the 8 9 figure portfolios. Yeah I think it very very low cash allocation is appropriate.
WCI: [00:39:49] All right let’s do it let’s do a couple more these let’s take one more from Twitter here. This one comes from Physician Couple who believes a blogger out there, says for those who will die with money leftover. What do you guys think of intentionally overfunding your kids 529 from the get go with the thought the money will eventually be used for grandchildren or even great grandchildren?
PoF: [00:40:09] You know that that’s a great question and you’re right I think they are. I know they are a couple blogger. I think it’s not a bad idea. You know the money that is not used by your children can be used for Cousins nieces nephews grandkids etc. But overfunding or super funding intentionally right off the bat well you’re going to miss out on at least if you’re in one of the you know 30 some 40 some states now that offer a state tax deduction. If you go over that amount which is often about ten thousand dollars per year well you’re not going to get a tax break on that money. So there there is that little bit of a thing you’ll miss out on. And you know I’m kind of at a crossroads right now where I saw our two 529 plans each cross over into six figures just this month. And so we’re deciding do we.
WCI: [00:41:06] Congratulations on that.
PoF: [00:41:07] Thank you. Yeah that’s another check in the boxes of things I wanted to see happened before considering an actual retirement. But yeah. So you know do we just stop now and the kids are eight or nine years away from college so that money could go up another 50 or 100 percent or could it be stagnant. But you know what will probably continue to contribute up to the state allowance for a tax deduction at least for the foreseeable future as long as we’re earning an income. And I guess there might there might be some thought to super funding it if we know that we have far more money than we’re going to need to fund our own retirement. It will grow tax free. And if you think about your kids kids it might grow tax free 30 years or more. And so that’s that’s pretty amazing. Now will that keep up with the cost of you know the rising cost of education which has gone up at double or triple the rate of inflation. You know hard to say but not a bad thought if you’re really really well off and you overfunded your own retirement.
WCI: [00:42:18] I think it’s pretty clever idea. You know the fact that you can change beneficiaries and keep that compound in that tax free compounding going for a couple more decades every time or if you’re leaving it to grandchildren have them leave it to great grandchildren I think there’s a lot of potential there. And so certainly as long as you’re not missing out on something else that you ought to be doing with the money you know maximizing your retirement accounts which get much better tax benefits than a 529. I think it’s OK to go and do something like that and you may see some incredible benefits from it over the decades.
WCI: [00:42:50] Let’s take this one this one’s kind of directed at you. I think this comes from Jason Kelley via Twitter. Says I’m in a similar position as a physician on fire but I’m 37. Our family plan, Life insurance, or health insurance rather through UHC is twelve hundred dollars a month with the 4000 dollar deductible. What’s your plan for healthcare coverage going forward. Eighteen to nineteen thousand dollars a year is a huge chunk of the 65 to 70 thousand dollar budget.
PoF: [00:43:18] You know I’d be happy with that united plan. I think that’s what UHC is. Twelve hundred a month four thousand dollar deductible. But I know I won’t have access to that. And there was a lot of illustrations that we see on your forum of people who are out there buying their own insurance and you know when I leave my employer I’ll be in the same boat which I know that you’ve been purchasing your own health insurance and evaluating your options every year.
PoF: [00:43:45] There are going to be new options. And I’ve got a great guest post from a health care finance banker coming up that will be released on January 25th. So that will be out Now when this is Live and he talks about what the options will be in 2019 when the penalty for a non Affordable Care Act compliant plan is lifted. And so right now if you’re over 30 years old. And you purchase a catastrophic plan well that doesn’t qualify and you have to pay the penalty that will no longer be the case. So I’ll take a close look at what those catastrophic plans actually cover because I think we can be self-insured for the cost that run in the you know run in the tens of thousands of dollars. Most years we would not incur that. I just want to be covered for the sixth and seven figure you know really awful things that can happen to people if you ended up in ICU for a while and get a nasty cancer. So catastrophic plans are one option. Starting in 2019.
PoF: [00:44:51] And I know you’ve looked quite a bit at the health sharing ministry plans and have friends who are using those and they tend to be less costly even though they do have some drawbacks and are not the same as health insurance. So I think those two options will be getting a lot of scrutiny. We will take a really close look at that for our family.
WCI: [00:45:11] Yeah for sure. I kind of chuckle when I hear this question I hear people ask it all the time. You know what I’m going to buy health insurance are going to buy health insurance and I’m like same thing I do every year. Every year we get to the 1st of December and we go what do we do for health insurance next year and we look at health sharing ministries and we look at what’s available through my partnership. We look at what we can buy in the open market. You know when you’re self-employed you’ve been buying your own health insurance for years. I know exactly what it costs. And so I know what it would cost going forward. And it’s expensive stuff. And that’s because health care is expensive stuff and because of our broken health care system but you know it’s no different from your other expenses. You know when you’re retired you’re going to have to cover your groceries you’re going to cover your property taxes and so you need to have enough money you can cover all those expenses. And I really don’t see health insurance as being dramatically different from all those other ones. It just happens to be particularly expensive and a lot of people get it through their employers until they retire.
PoF: [00:46:06] Right. And like college it’s been going up at a rate much higher than inflation. And that’s not sustainable for ever. You know I don’t I don’t see six to 10 to 20 percent raises in costs. I don’t know how it’s going to be fixed but if every retiree has to pay 100 thousand dollars a year in health insurance that’s just simply not going to happen. So I’ll be really interested to see how things unfold over the years.
WCI: [00:46:33] OK let’s take a couple of softer questions here. This one’s from Dr. Curious. Another blogger. I’d love to hear how your visions of practicing medicine later in your careers have evolved and changed over time given what seems like earlier financial independence than anticipated for both of you.
WCI: [00:46:56] Want to take a shot at that first?
PoF: [00:46:58] Oh sure. You know I envisioned working well at least into my 50s. You know my kids will be with us until I’m I think about fifty three would be when my younger would enter college and then I discovered this whole concept of financial independence and realize that work was optional.
PoF: [00:47:19] And everything I read in that space said that well once you’re financially independent you know work becomes more enjoyable because now it’s it’s your choice. And I find myself questioning that choice more and more and being more annoyed by some of the things I used to just take for granted as part of the job. So interestingly I have become I hate to say it but a little more cynical towards my career in medicine and I tend to question sometimes you know why I am going into work just after I fell asleep at eleven thirty at night and coming home and going back the next day. Missing out on my family going to the water park like they did on Saturday. So it’s interesting and an almost sad in a way. But having reached financial independence has made me question things that I never used to Question.
WCI: [00:48:13] It’s interesting that you feel like you’re missing out you know on a waterpark trip during a bomb cyclone. But you know OK I get it. It must be indoors.
PoF: [00:48:24] My wife would tell me I didn’t miss out on much except for a lot of screaming kids.
WCI: [00:48:29] Yeah for sure. I mean you know it’s interesting I don’t know that I had this great vision when I was in my training. You know I guess I assumed I’d work till 60 or something when I came out of the military and joined my current partnership. I think my plan and I was lucky in that very early in my career I kind of figured out this financial stuff.
WCI: [00:48:48] But my plan was to hit financial independence by my early 50s. And I thought by you know 50 or so I’d be cutting back to what I’m going to be going to the summer.
WCI: [00:49:01] So you know half timeish kind of six eight shifts a month and do that throughout my 50s. You know I have dropped the night shifts, work this Half-Time kind of schedule through my 50s and retire around 60. And I think probably the success of the white coat investor has allowed me to knock seven years off that plan. So instead of working half time for a decade I’ll probably work Half-Time for a decade and a half, two decades. I think that’s probably the only shift I anticipate right now. I don’t plan to quit medicine anytime soon. You know it’s interesting all my partners are always asking me when you going to quit when you going to retire?
WCI: [00:49:37] But I really don’t don’t plan to. You know I’ve basically I’ve basically eliminated the crappy parts of my job. I no longer work night shifts, no longer work a ton of shifts, I’ve got plenty of days off you know unless I want to go on a three week trip. And that becomes a little bit more difficult. But until that sort of thing becomes a major driving force for me I think I’m going to continue doing what what I’m doing. It’s like a post I did a couple of years ago where I put a Venn diagram together with on one side your ideal life and the other side your actual life. And I’ve spent the last two years trying to get as much overlap between those circles as possible and I think that’s true. I think it does make you happier. The more overlap you can get between your ideal life and your current life. And so that’s what I’m trying to do.
PoF: [00:50:22] Yeah and if you do end up wanting to take those three week or even three month trips you do have the option of locums and and you and I happen to both have the benefit of being in specialties where shift work is common and easy to find.
WCI: [00:50:38] Yeah I tell you what I don’t get super excited about getting on a plane to go somewhere and work a shift. That is not enticing to me. In fact if my small Democratic group lost the contract to some large contract management group you know that dictated we see a billion patients an hour and told us how to do our job and what shifts and schedule we’re going to work. I’d give a lot more serious consideration to early retirement. I’ll be honest. Yeah just wouldn’t be nearly as appealing as it is now. Where I own the job and go in and get to see my friends when we get to control as much as we can. You know within our healthcare system, it would be much less appealing to me if if my job were such a good one.
PoF: [00:51:21] Sure. And when I did full time locums we didn’t have kids so it was just my wife and I traveling and it was kind of like slow travel. We explored a new city and actually it was really really a lot of fun and a lot of those jobs they didn’t want to pay for a call. So I worked a day shift and had the afternoons and evenings free.
WCI: [00:51:41] Yeah at this point moving somewhere else would be taking uprooting family. I don’t think my family would be very excited about that especially when the alternative was for me to just quit working.
WCI: [00:51:51] All right so let’s do one last question here. This one comes from Cope via Twitter. What non-financial non-professional learning do you now find most fulfilling? What work Do you now find most meaningful? What do you find most surprising about FIRE? Thank you.
PoF: [00:52:08] You’re welcome. That’s a lot that’s a lot in the three questions and pretty philosophical at that but I’ll guess I’ll tackle that. You know the non-financial learning or active duty and I think for me the most fulfilling or meaningful is that which involves meeting other people and getting out of the House and for me that’s like the curling club and homebrewing club and still learning because there are new skills to learn and and new techniques and I’m hanging out with people that I wouldn’t meet otherwise and think that’s important especially when you’re you know if you’re working a lot. As a physician you spend a lot of time around and around the same people doing the same kind of thing and when you’ve got a family we tend not to get out as much. So just to have that up where you know once a week or once a month or whatever it is with any kind of a social group that you get out and do something outside of your normal routine.
WCI: [00:53:15] That’s great. You know what non-financial non-professional learning do I find most fulfilling? I don’t know I like history. I think history is pretty fascinating to learn. But the work I find most meaningful is the work I’m doing. If it wasn’t the most meaningful thing for me I’d quit doing it. You know I enjoy practicing medicine I think medicine is fascinating. I loved the study of people you know and just what makes them tick. I find it endlessly fascinating. What do you find most surprising about FIRE. Well I guess I think what I find most surprising is how important a high income is to getting there early. And how much of a difference raising your income can make and getting you to FIRE. I mean basically knocked seven to 10 years off you know getting the FIRE by finding a way to dramatically raise my income. And I think all physician income is obviously plenty. I mean look at you now. It’s obviously plenty of money to get early financial independence. It’s amazing that if that’s really your goal there may be other pursuits that can get you there earlier.
WCI: [00:54:28] You know real estate investing kind of stuff in the business world in particular that if that’s really your goal to get FIRE you know maybe medical school and residency isn’t the fastest route to get there. I think that is you know something that I found surprising because certainly when I was younger I didn’t think anybody made any more money than doctors you know. And I think a lot of us go into medical school not realizing that there are all these other options out there.
PoF: [00:54:57] Yeah what’s most surprising to me I think is just how little people know about this whole concept of financial independence and the fact that you can retire early. It was news to me about three years ago four years ago. I had never heard of it. And it’s surprising how many people in other fields like you say they can start making money at 22 25 and good money by age 30. When we’re just starting out with our negative net worth. And so what surprises me is how many people under 30s and 40s that are in great shape to do this and how few people understand that it’s possible and that you can live well and and retire early or become financially independent and work the way you want to.
WCI: [00:55:44] Yeah for sure. Well you’re doing a great thing what you’re doing over the Physician on fire and teaching people to understand these principles and understand that they do have options available to them and that if they’re you know feeling burned out.
WCI: [00:55:56] If They don’t want to be in this career that there changes they can make typically financially independent which maybe it will make them enjoy their career more. But if nothing else it gives them the option to get out of it. And so I appreciate what you do. I’m sure our listeners do too. And I appreciate you coming on the podcast today.
PoF: [00:56:14] Thank you very much. Thanks for the invitation and I hope we get a chance to do this more often.
WCI: [00:56:19] You’re very welcome. If you haven’t checked out physician on fire you can find it at physician on fire dot com. I recommend you go over there today and check out some of the posts and start dreaming about what you would do with financial independence.
WCI: [00:56:32] This podcast was sponsored by Adam Grossman a Mayport Wealth Management. Adam is a Boston based adviser and works with physicians all across the country. Unlike most other advisers Adam offers straightforward flat fees for both standalone financial planning and investment management. Whatever stage you’re at in your career Adam can help you get organized with a personalized financial plan can help you implement it with a low cost index fund portfolio. Adam is a Chartered Financial Analyst and received his MBA from MIT. But more importantly you’ll benefit from Adam’s own personal experience with many of the same financial obstacles and opportunities that face physician. To learn more visit Adam’s website Mayport dot com slash white coat to download a free eBook especially for physicians.
WCI: [00:57:15] Head up shoulders back. You’ve got this. We’re here to help you. Be sure to check out both physician on fire and white coat investor. you can follow us on Twitter and Facebook. You can subscribe to the blog post by e-mail. You can listen to the podcast like you are now. We’re available on YouTube. It’s also an online course and books are available however you like to learn. We’ll get this information to you so you can make a difference in your financial life. See you next time.